THE AVIATION FUEL PRICE CONUNDRUM
Government should provide temporary relief for the airlines
Domestic carriers in the country under the aegis of Airline Operators of Nigeria (AON) have written the Major Energies Marketers Association of Nigeria (MEMAN), urging the body on behalf of its members to review downwards the cost of aviation fuel, known as Jet A1, which the airlines put at N3,300 per litre. The airlines said they might consider suspending their operations if no action was taken to bring down the cost of the product. But it seems they have backed down on that threat. Meanwhile, MEMAN has denied that marketers sell product at such a price, while also indicating that there is no uniform sale price because that would be breaching the anti-competitive law.
Specifically, MEMAM states that the average cost of aviation fuel is N1000 less than what the airlines are reporting. Besides, as they also claim, and quite correctly, what is happening in the sector is not peculiar to Nigeria. Prices of petroleum products are surging globally due to the war between the US-Israeli and Iran. We agree with MENAM. Europe has “maybe six weeks of jet fuel left”, the head of the International Energy Agency (IEA) warned last week in a British Broadcasting Corporation (BBC) report. “A spokesperson for the UK government told the BBC that it was working with fuel suppliers and airlines to ‘ensure people keep moving and businesses are supported’”, the report also stated.
What this means is that even though the challenge is global, authorities in many countries are not just folding their hands. To solve the high price of aviation fuel problem in Nigeria, MEMAN has advised airline operators to adopt a more sustainable approach by moving away from spot pricing and entering into longer-term contractual arrangements with their suppliers. This is called fuel hedging, which is when an airline buys fuel in advance to protect itself from potential fuel spikes. To do this, the airline needs storage facilities. Big airlines survive by hedging fuel to protect their operations from oscillating fuel prices and also during the period of scarcity. Feelers indicate that the many marketers do not like the piecemeal sale of the product to our domestic airlines while some also default in prompt payment.
The Dangote Refinery is currently producing much of the petrol, diesel, aviation fuel and other related products consumed in Nigeria. It is also exporting refined products to other countries, especially in West and Central Africa. Under the prevailing regime, marketers buy avian fuel from Dangote Refinery in dollars and sell in Naira to the airlines. Even the freighting costs and charges are denominated in dollars. The implication is that the federal government has allowed a situation in which marketers sell to airlines in naira after buying the product sourced locally in dollars. Therefore, government intervention is needed to address the increasing price of aviation fuel and provide temporary reprieve for the airlines at this most challenging operational period.
The threat by the AON to suspend operations is misplaced because the challenge being faced in the sector is driven from outside. And the challenges the operators face is nor peculiar to Nigeria. But to escape from the current quagmire, the federal government will have to make some interventions as other countries are doing. As a way of mitigating the challenge, stakeholders have called for the suspension of multiple charges in the sector. Without that, airline operators may be forced to pass on higher costs to passengers, in a manner that could further strain an industry that is already fragile. We also endorse the idea of the Federal Airports Authority of Nigeria (FAAN) and other agencies to reduce their levies, taxes on all local airlines, flight tickets, at least during this period.
Everything must be done to ensure that the aviation sector in Nigeria is not crippled.
